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YouTube is only one of hundreds of user-generated content sites facing a huge copyright problem — the risk of being “Napsterized” • sued out of business by the content owners whose content is being appropriated on their sites.

YouTube and the others, including Facebook and Flickr, have thus far taken a manual approach to solving the copyright violations. Unfortunately, the current available solutions are limited. They can create copyright deals with the biggest content owners, but what works well for large owners does not work at all for the thousands of other, smaller content owners, and putting together one-off relationships with each doesn’t scale.

They can police their sites manually and pull down illegal content, but that process is both time-consuming and error-prone, and potentially opens the door for more liability.

Small content owners don’t have the resources that the big labels have. Google recently announced that it has set aside $200 million in an escrow fund to absorb the cost of potential copyright lawsuits from those labels, after they filed or threatened copyright infringement lawsuits after Google’s purchase of YouTube in October. Small content owners can’t afford such universal suits, so they need other, more pinpointed ways of dealing with the copyright content

Instead of the current manual approach, this problem needs a technology solution. The solution must provide automatic tracking of content, transparency and accountability, industry standards for consistency from site to site, and mechanisms for monetizing the process of content use. By leveraging new technologies, both the sites and the content owners can benefit — with “super distribution” for the content owners and legal means of operating for the websites. This is the win-win outcome both parties seek and is easily obtainable with the right technology. We’re already seeing some early players in the market, such as Snocap and Attributor (Sigma Partners investment). Given the size of the opportunity, we’ll probably be seeing more players soon.

There are parallels between today’s website content market and the music market of the late 90s.When Napster started sharing music online back in 1999, the industry chose to shut them down instead of working with them to find a solution that worked for all the parties involved. While they achieved their short-term goal, they did more long-term damage to their industry than they realized at the time. Retail sales continued to decline, piracy moved into the shadows, and the music industry had no way to monetize it.

Fast forward to today, and the content owners (book publishers, movie and TV studios, photographers, newspapers, etc.) are faced with this same dilemma. Only this time there are dozens of websites, and the lessons of Napster are fresh on their minds. The key issue is a fundamental disconnect in the business model for user-generated content websites. That disconnect is about appropriating content. Since it has become so easy to publish and syndicate content online, users liberally post copyrighted content from the entertainment industry without attribution or payment. Self-publishing and syndication make re-use of content effortless, and self-serve ad networks and contextual pay-per-click advertising make re-use profitable. Websites attempt to legalize the process, but it is not a simple task, and the gaping divide persists. That’s why I believe a technology solution is necessary to address these issues • and we’re getting closer.